The Research On Risk Management Of The Local Government Financing Platform

The Local Government Financing Platform is a product of institution under the slogan of taking economic construction as the central task in China. Right of the government does not match the local financial authority which the resources invested in economic development were already stretched thin. Promotion incentives and budget constraint problem will lure the local officials to borrow for extra-budgetary. Fiscal opportunism behaviors directly cause excessive financing behavior. These two aspects compose the deep causes of the risk of the local government financing platform. This paper suggest the Local Government Financing Platform remit the dilemma of financing difficulty of local urban construction impersonally, and speed up the City and town-rization.The Local Government Financing Platform is a especial form of corporation which has Chinese characteristics. The problem of financing difficulties is the main forming background of the Local Government Financing Platforms. The newest Amendment to the Budget Law of China provide the basis of issuing the local treasury bonds for the provincial level local governments, but from the side of local government below the provincial level, They do not have the right to issue the local treasury bond. The paper thinks that the local government financing platform will maintain the position of the financing tools for the local government below the provincial level. The risk of the local government financing platform is a hot spot of finance and economics which received extensive attention form all walks of life. The number of the relevant regulatory documents from the State Council, the National Development and Reform Commission and the China Banking Regulatory Commission reached several tens species.This paper considers that the relationship between the Local Government Financing Platform and the local government is totally in chaos, The Local Government Financing Platforms are self-financing corporation formally, but cast aside the financial aid from the local government, These Local Government Financing Platform hardly earned essential operating income. Under this logic, self-financing becomes empty talk. This paper wants to learn the deep relationship between the local government and the Local Government Financing Platform, Observe these Local Government Financing Platform from the intrinsic quality.This paper hold the attitude that the most important expression form of the risk is the excessive investment and financing behavior. The local government financing platform do not think about the own strength of the firm, a great deal of non-profit urban construction development work takes place. These urban construction development work do not bring return on investment. The risk origin from the economic and political system make the local government financing platform have the strong will to conduct the excessive investment and financing behavior. And the excessive investment and financing behavior do not have sufficient supervision which amplify the risk of the local government financing platform.This paper introduce the basic definition of the Risk Management Theory, respectively introduce the definition of risk, the definition of risk management, and the basic practice steps of the enterprise risk management. According to the Risk Management Theory, the practice steps include the risk identification, risk assessment and the risk response suggestion.According to the Risk Management theory, this paper found that the risk of local government financing platform include operation risk, strategic risk, financial risk, legal risk and market risk. The forms of risk vary, such as low ability of staff members; excessively administrative restriction; imperfect financial regulation and inadequate registered capital. The risk transmitting mechanism of local government financing vehicle is quite a bit which have the possibility of transmitting to the central finance and systematic financial risk.This paper summarized previous research achievement of risk appraising system of local government financing platforms, combined the existing model by Moody’s, designed a new risk appraising model from three aspects, include external environment, financial index and internal environment.During the period of participating the bond project of the LS Urban Construction Group, the author found that as a country towns level local government local platform, this firm did not establish the systematic investment and financing mechanism, the management layer of the corporation are busy with looking for the money for the urban construction projects from the superior departments in charge, ignored the corporation’s own risk management development.This paper selected a district level local government financing platform-LS Urban Construction Group as the analysis of case. Analyzed the situation of the risk of that firm from three aspects, include the projects, the strategic business and the corporation itself. The paper found that this firm faced a series of problems such as highly administrative dependent business model; high cost of financing; inefficiency of money management and formalism of corporate governance. In the aspect of strategic business, the firm also face a series of problems, such as the business mode of the corporation is single and the financing channel is narrow, the firm should learn to innovate the financing channel. The paper consider that this government financing platform should take some risk control and risk application measures to these risks.This paper provide risk prevention mechanism from the LS Urban Construction Group. Suggested that the primary task is to straighten out contractual relationship, then combined with the latest policy to refactor the financing mechanism, and finally get rid of the administrative reform. These suggestion would be beneficial to risk prevention of the local government financing platforms. These risk prevention mechanism can be available for reference to the country towns level local government financing platform such as LS Urban Construction Group.In order to make the paper more scientific and feasible, this paper used a series of study methods, such as Qualitative Research Method, Literature Research Method and Case Analysis. Wish to trace the source and dissect the risk of the local government financing platforms.